Burnsville is HOT AND COLD
The number of New Listings in Burnsville have been falling since 2006 at a steady rate while the Median List Price started to rise in 2012. After remaining high in 2006 – 2009 Inventory Levels began to fall and started to fall even more quickly in 2011. Pending Sales and Closed Sales should be pretty close [...]
Minnesota Luxury Real Estate – Inventory Still Falling Quickly
The Median List Price and Median Sale Price haven’t moved much based on the data I collected. Data for Luxury Homes covers the entire state of Minnesota, these numbers may be watered down Owners of these homes may be more firm on the price they want, with little change in price reductions There are fewer [...]
Higher Priced Homes Are Holding Chaska Back
The number of New Listings in Chaska have been declining at a steady rate over the past six years. The Median List Price in Chaska has been falling until this past Winter were it started to increase, indicating Sellers are starting to see more sales supporting a high List Price. Pending Sales and Closed [...]
The Worst is Over for the Twin Cities Housing Market
Between 2006 and 2011 the Median Sale Price fell 35%. wiping $7 trillion from the value… …of housing assets and leaving many Americans with untenably high levels of mortgage debt relative to the value of their homes… Consumer confidence has now rebounded from historical lows and sales of existing homes have started to rise slightly… As a [...]How the Housing Market is Expected to Recover
The Demand Institute released a report detailing how they thing the Housing Market will recover in the coming years. The worst is over for the U.S. housing market. After six years of declining sales and falling prices that wiped $7 trillion from the value of housing assets, a turning point has been reached. The Demand Institute sees [...]
Short Sale Trends
RealtyTrac recently wrote about Short Sale Trends in the National Housing Market, “This is the third article in a series spotlighting short sale trends in early 2012, which seem to indicate that short sale volume is on the rise while short sale prices are trending lower” and I thought I would write a quick blurb [...]
Savage’s Seller’s Market
Since peaking in 2007 the number of New Listings in Savage and the Median List Price have been declining at a steady rate. Inventory, much like the rest of the Twin Cities, peaked in about 2008 and have been falling since up to about 2010 were it rose again and started to fall quickly. Pending [...]
Which Communities Are High Risk of Foreclosure?
The LISC Intrastate Foreclosure Risk Scores provide a good starting point to find out which areas are hardest hit by the foreclosure crisis, and where you might want to target your programs and resources. The composite score is based on multiple risk factors (subprime lending, mortgage delinquencies, foreclosures, and vacancies) — you can explore these [...]
Golden Valley’s Stubborn Housing Market
The number of New Listings in Golden Valley have been falling at a steady rate from about 2005 – 2010. After a slight increase in 2010 New Listings have been falling ever since. The Median List Price has been making downward movements for some time and have just recently started to inch up. The Inventory [...]
Farmland Values Continue to Rise
The University of Minnesota’s Department of Applied Economics released, “Minnesota Farm Real Estate Sales Data from 1990 – 2011” in April 2012. The Department of Applied Economics has over 54,000 sales in their MLE Database, which covers the period of October 1, 1989 – September 30, 2011. This includes over 6 Million Acres and in [...]
Chanhassen Home Prices – A Steady Ride
Since 2005 the Median List Price in Chanhassen has fluctuated between $300,000 and $350,000 till June 2011 were it rose to $373,000 for the month of April 2012. The New Listings Trend has been steadily falling since 2005. With less competition entering the market this has allowed homeowners to ask for a higher Listing Price [...]
Rosemount – Seller’s Market and Rising Home Prices, Part II
The number of New Listings in Rosemount have been in free fall since February 2007 and currently there are no signs of easy up any time soon. The Median Listing Price seems to have leveled off since December 2010, which would suggest there are fewer corrections in Rosemount’s Housing Market. Pending Sales and Closed Sales [...]
Prior Lake Sees Slow Improvements in the Market
The number of New Listings entering the market in Prior Lake peaked in December 2007 at about 115 units and have been declining pretty quickly until 2010 were they started to slow down. Right now the average number of New Listings is just under 70 units per month. The Median List Price of $238,000 in [...]
Distressed Inventory Continues Decline
Traditional Inventory accounted for 68% of the Inventory in the chart below during the month of April and peaked back in March 2008 while Distressed Inventory peaked in April 2011. Removing Traditional Inventory we can see how Distressed Inventory stacks up by itself. In this chart we get a better visual on how 32% of [...]
27 Suburbs with Appreciating Home Prices
Twenty-Seven out of the Ninety-Two Communities we survey in the Twin Cities Metro Area saw home price rise when we compared the Median Sales Price in 2011 to the first quarter of 2012. We also surveyed the same communities to see which ones have appreciated since the 2006 Housing Market Peak. So far we haven’t [...]Search Homes Via Mobile Device
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About the Author
Aside
from Real Estate I also enjoy Home Remodeling, Blackjack, Poker, Horse
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to time and listen primarily to Jazz and Blues Music. My all time
favorite musician is Miles Davis with John Coltrane in a close second.
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Optimism is Slowly Returning
Optimism is Slowly Returning
Two important segments of the economy: consumers and small businesses, are getting more optimistic. In surveys released last week by the National Federation of Independent Businesses (NFIB) and the University of Michigan, the measures of confidence both reached their highest level since the recession of 2007-2009 began.
The NFIB survey measures business activity and the expectations of small businesses across the US. The respondents are asked about their opinion on the economy and their plans to hire and increase capital spending. Using the answer to these and other questions, the Small Business Optimism Index shows the relative level of optimism by small businesses across the US. In March seven of the 10 index components increased, with particularly large improvement in plans to hire and plans to increase capital spending. The overall index rose 2.2%, the largest gain in a year and a half and stood at its highest level since December 2007. The Index was at the exact same level a year earlier in February 2011 before it plunged as the European debt crisis emerged and financial markets dropped.
Small businesses are a vital component of the US economy. Businesses with fewer than 100 employees account for 98% of all the businesses in the US and 55% of all the jobs. Historically when the optimism index is rising US payroll employment is increasing. The recovery is small business optimism is a positive for the economic outlook. The Index is still below its expansion levels of the mid 2000’s, but it is also well off the bottom and heading in the right direction If it can be sustained, and barring any economic shocks this is likely, it will point to stronger economic growth in the second half of 2012 and 2013.
The University of Michigan has been surveying consumers for more than 50 years. Its Index of Consumer Sentiment is one of the most widely watched barometers of the vital consumer sector of the economy. The Index is calculated from the answers to more than 20 individual questions. These questions can be broken down into two types: those that relate to current conditions (are you better off today than you were a year ago?); and those that relate to expectations about the future (do you expect to be better off in the next 12 months than you are today?). The “Current Conditions” Index is about pocketbook issues and it tends to more closely track with consumer expenditures. The “Expectations” Index tends to be a leading indicator, pointing to the future direction of economic activity.
In the preliminary estimate of this Index for May (the final index will be released in 2 weeks), the Current Conditions Index reached its highest level since January 2008. For the first time in more than four years, consumers feel about the same as they did when the recession started. This improvement suggests that households will continue to increase their spending in the weeks and months ahead. Like the NFIB Index, the Current Conditions index is still far below the levels achieved during the height of the last expansion in 2004-2006. It too is likely to continue to gradually improve, barring another major shock, pointing to further spending growth in the future.
Optimism is slowly returning to the US economy in both the business and consumer sectors. It was here a year ago, only to be derailed by the European debt crisis. While that crisis is alive and well and could flare up again at any time, the past year has seen enough improvement in the underlying fundamentals, from healthier labor markets to rising equity markets (even with the recent declines, US equity markets are well above the levels of last fall) that it appears increasingly unlikely we will see a repeat of last year’s disruption.
Overall, the improvement in optimism suggest that a stronger second half is in store.
Two important segments of the economy: consumers and small businesses, are getting more optimistic. In surveys released last week by the National Federation of Independent Businesses (NFIB) and the University of Michigan, the measures of confidence both reached their highest level since the recession of 2007-2009 began.
The NFIB survey measures business activity and the expectations of small businesses across the US. The respondents are asked about their opinion on the economy and their plans to hire and increase capital spending. Using the answer to these and other questions, the Small Business Optimism Index shows the relative level of optimism by small businesses across the US. In March seven of the 10 index components increased, with particularly large improvement in plans to hire and plans to increase capital spending. The overall index rose 2.2%, the largest gain in a year and a half and stood at its highest level since December 2007. The Index was at the exact same level a year earlier in February 2011 before it plunged as the European debt crisis emerged and financial markets dropped.
Small businesses are a vital component of the US economy. Businesses with fewer than 100 employees account for 98% of all the businesses in the US and 55% of all the jobs. Historically when the optimism index is rising US payroll employment is increasing. The recovery is small business optimism is a positive for the economic outlook. The Index is still below its expansion levels of the mid 2000’s, but it is also well off the bottom and heading in the right direction If it can be sustained, and barring any economic shocks this is likely, it will point to stronger economic growth in the second half of 2012 and 2013.
The University of Michigan has been surveying consumers for more than 50 years. Its Index of Consumer Sentiment is one of the most widely watched barometers of the vital consumer sector of the economy. The Index is calculated from the answers to more than 20 individual questions. These questions can be broken down into two types: those that relate to current conditions (are you better off today than you were a year ago?); and those that relate to expectations about the future (do you expect to be better off in the next 12 months than you are today?). The “Current Conditions” Index is about pocketbook issues and it tends to more closely track with consumer expenditures. The “Expectations” Index tends to be a leading indicator, pointing to the future direction of economic activity.
In the preliminary estimate of this Index for May (the final index will be released in 2 weeks), the Current Conditions Index reached its highest level since January 2008. For the first time in more than four years, consumers feel about the same as they did when the recession started. This improvement suggests that households will continue to increase their spending in the weeks and months ahead. Like the NFIB Index, the Current Conditions index is still far below the levels achieved during the height of the last expansion in 2004-2006. It too is likely to continue to gradually improve, barring another major shock, pointing to further spending growth in the future.
Optimism is slowly returning to the US economy in both the business and consumer sectors. It was here a year ago, only to be derailed by the European debt crisis. While that crisis is alive and well and could flare up again at any time, the past year has seen enough improvement in the underlying fundamentals, from healthier labor markets to rising equity markets (even with the recent declines, US equity markets are well above the levels of last fall) that it appears increasingly unlikely we will see a repeat of last year’s disruption.
Overall, the improvement in optimism suggest that a stronger second half is in store.
Small businesses are getting more optimistic
Consumers are feeling better as well
Market Fundamentals Soften in the Washington, D.C. Metropolitan Area as the Government Contracts
The office market in the Washington, D.C. Metro region
was off to a slow start in 2012, with leasing activity down from last
year at this time in both the Downtown and suburban markets. Negative
absorption of 452,000 square feet (sf) in the District marked the second
consecutive quarter of decreased absorption. The CBD submarket was
responsible for most of this as tenants such as the Federal Housing
Finance Agency (FHFA) and the Internal Revenue Service (IRS) either
vacated space for other submarkets or downsized. At 13.1%, the CBD
vacancy rate is at its highest level in 15 years.
The Northern Virginia market also contracted, due in large part to space being returned to the market by the U.S. Army, Air Force and other government agencies in Arlington County as a result of BRAC (Base Realignment and Closure) initiatives. Absorption was negative 1.2 million square feet (msf), with the Crystal City submarket contributing to about half of that. Vacant space in the Northern Virginia office market approached a level not seen since 2003, with 17.5% of its inventory recorded as vacant.
Suburban Maryland was the only jurisdiction to witness some positive market fundamentals. Despite positive absorption, slow leasing activity in Suburban Maryland mirrored the rest of the region, coming in at about half of last year’s total at this time.
Renewals remained dominant, accounting for 38% of all leasing activity in the Metro region. In some cases, landlords are willing to renew tenants with up to 5 years left on their leases. Tenants of all sizes continue to negotiate favorable lease terms including contraction and termination rights. The drive towards efficiencies and keeping costs under control has resulted in the “right-sizing” of all types of businesses: legal, non-profit, and … government.
The investment sales market in the District was fairly active during the first quarter, with nine closed transactions representing $979 million in total volume. The top three transactions were completed by foreign investors. With 17 office properties currently on the market, D.C. is poised to have an active 2012. Investment sales in the suburbs, on the other hand, nearly came to a standstill during the first quarter of 2012 with few properties changing hands.
Office market conditions in the region will remain lackluster into 2012, at least through the election, as government continues to downsize while tenants put off making decisions for as long as possible. Activity will be mainly driven by lease expirations, although government contractors working for health or intelligence agencies may see some growth. Sectors such as technology, education and healthcare will also continue to grow, but not enough to absorb the excess supply of vacant space on the market.
Maria Sicola, Executive Managing Director of Research, Americas, and Paula Munger, Director of Research, Mid-Atlantic Region
The Northern Virginia market also contracted, due in large part to space being returned to the market by the U.S. Army, Air Force and other government agencies in Arlington County as a result of BRAC (Base Realignment and Closure) initiatives. Absorption was negative 1.2 million square feet (msf), with the Crystal City submarket contributing to about half of that. Vacant space in the Northern Virginia office market approached a level not seen since 2003, with 17.5% of its inventory recorded as vacant.
Suburban Maryland was the only jurisdiction to witness some positive market fundamentals. Despite positive absorption, slow leasing activity in Suburban Maryland mirrored the rest of the region, coming in at about half of last year’s total at this time.
Renewals remained dominant, accounting for 38% of all leasing activity in the Metro region. In some cases, landlords are willing to renew tenants with up to 5 years left on their leases. Tenants of all sizes continue to negotiate favorable lease terms including contraction and termination rights. The drive towards efficiencies and keeping costs under control has resulted in the “right-sizing” of all types of businesses: legal, non-profit, and … government.
The investment sales market in the District was fairly active during the first quarter, with nine closed transactions representing $979 million in total volume. The top three transactions were completed by foreign investors. With 17 office properties currently on the market, D.C. is poised to have an active 2012. Investment sales in the suburbs, on the other hand, nearly came to a standstill during the first quarter of 2012 with few properties changing hands.
Office market conditions in the region will remain lackluster into 2012, at least through the election, as government continues to downsize while tenants put off making decisions for as long as possible. Activity will be mainly driven by lease expirations, although government contractors working for health or intelligence agencies may see some growth. Sectors such as technology, education and healthcare will also continue to grow, but not enough to absorb the excess supply of vacant space on the market.
Maria Sicola, Executive Managing Director of Research, Americas, and Paula Munger, Director of Research, Mid-Atlantic Region
A Little Sunshine Falls on MIPIM
After a cold and wet start, the sun came out at MIPIM to light-up the launch of our International Investment Atlas last week.
The Atlas looks at 2012 trends but also reviews the year gone by and as we commented, the raw statistics on 2011 make it look like a pretty good year – global investment up 14%, rents up 4.9% and capital values up 8.4%. In reality of course it was a year of two very contrasting halves and so far 2012 has continued the weaker pattern that blighted the year-end rather than reverting to the much more welcome form of early last year: when we had a market with improving equity and debt as well as more risk tolerance.
However, maybe it was the sunlight, maybe it was the free flowing hospitality, but I’d have to say the mood at MIPIM was better than last year and a lot better than many expected. There was of course an understandable fascination with debt but there was also something of a “can do, will do” attitude coming from a lot of investors who were ready to think more imaginatively to find opportunities – whether in new markets or by taking more risk in existing targets.
This was also reflected in the conclusions of our report and we expect more diverse patterns of investment this year, with a lot of local issues bubbling up to shape risk and growth rather than just the broad global trends that seem to have dominated since the Credit Crunch hit.
Occupiers however are still subject to some pretty broadly spread forces of course and it is changes in occupier needs rather than pure expansion which could be an early catalyst for much of the market, whether from tenants seeking space to tackle new markets, to cut occupational costs or to address structural issues such as sustainability or technological and demographic change.
Global Commercial Property Investment Volumes (excluding multifamily)
Source: Cushman & Wakefield, RCA, KTI and Property Data
In terms of investment activity, the Atlas forecasts a fairly flat year for trading meanwhile – but with something like a 20% increase in the second half of the year as confidence and the flow of opportunities increases. The report in fact concluded that while a return of better economic growth would be key to the strength of recovery, the most crucial point for the timing of that recovery will be confidence – and based on what I saw at MIPIM, that return of confidence may come sooner than we think!
David Hutchings, European Research Group, London
The Atlas looks at 2012 trends but also reviews the year gone by and as we commented, the raw statistics on 2011 make it look like a pretty good year – global investment up 14%, rents up 4.9% and capital values up 8.4%. In reality of course it was a year of two very contrasting halves and so far 2012 has continued the weaker pattern that blighted the year-end rather than reverting to the much more welcome form of early last year: when we had a market with improving equity and debt as well as more risk tolerance.
However, maybe it was the sunlight, maybe it was the free flowing hospitality, but I’d have to say the mood at MIPIM was better than last year and a lot better than many expected. There was of course an understandable fascination with debt but there was also something of a “can do, will do” attitude coming from a lot of investors who were ready to think more imaginatively to find opportunities – whether in new markets or by taking more risk in existing targets.
This was also reflected in the conclusions of our report and we expect more diverse patterns of investment this year, with a lot of local issues bubbling up to shape risk and growth rather than just the broad global trends that seem to have dominated since the Credit Crunch hit.
Occupiers however are still subject to some pretty broadly spread forces of course and it is changes in occupier needs rather than pure expansion which could be an early catalyst for much of the market, whether from tenants seeking space to tackle new markets, to cut occupational costs or to address structural issues such as sustainability or technological and demographic change.
Global Commercial Property Investment Volumes (excluding multifamily)
Source: Cushman & Wakefield, RCA, KTI and Property Data
In terms of investment activity, the Atlas forecasts a fairly flat year for trading meanwhile – but with something like a 20% increase in the second half of the year as confidence and the flow of opportunities increases. The report in fact concluded that while a return of better economic growth would be key to the strength of recovery, the most crucial point for the timing of that recovery will be confidence – and based on what I saw at MIPIM, that return of confidence may come sooner than we think!
David Hutchings, European Research Group, London
US Employment Off To a Good Start
The US Labor Department reported this morning that the economy
added 243,000 payroll jobs in January, the largest increase in
employment since last April. In the private sector payrolls increased by
257,000, bringing total private sector employment growth over the last
six months to 1.06 million persons. The unemployment rate declined to
8.3% from 8.5% in December. As recently as last August the unemployment
rate was 9.1%.
The strongest growth was in the professional business services sector, where employment increased 70,000 jobs. Large increases were also reported in the manufacturing sector (+50,000 jobs), leisure and hospitality (+44,000) and education and health (+36,000). The government sector continues to shed jobs as states and particularly localities are forced to retrench under budget pressures. Office-using employment (made up of the financial, professional services and information sectors) increased 52,000 jobs, the fifth month in a row that these sectors have added more than 40,000 jobs. The last time that happened was from November 2005 to March 2006.
The decline in the unemployment rate is particularly encouraging. This data is obtained from the separate survey households (as opposed to the business survey that provides the payroll employment data) and that survey showed the number of people unemployed fell by 339,000 in January and has plunged by more than 1.1 million in the last four months. The labor force continues to grow, so people are entering the labor force and finding jobs.
The US economy is slowly regaining its footing after the interruption that started last spring. The employment growth of the last two months coupled with indicators of rising business and consumer spending (auto sales in January were the highest since mid-2008) are very positive. It’s still early and there are a number of important challenges facing the US economy including the resolution of European sovereign debt issues, the US budget deficit debate and the 2012 elections. But with corporate profits at record levels and household balance sheets in much better shape, the fundamentals are improving.
For the real estate industry there is nothing more important than employment. More jobs represent more demand for space. So a return to healthy job growth is the most positive sign in the last six months. Rising spending will also spur higher demand for manufacturing, warehouse and other industrial spaces. And, of course, higher consumer spending will help the retail sector.
We are encouraged by this report, however, as the chart below shows, the economy turned in a similar performance a year ago only to falter. We have been cautiously optimistic on 2012 and this report reinforces that outlook.
�
The strongest growth was in the professional business services sector, where employment increased 70,000 jobs. Large increases were also reported in the manufacturing sector (+50,000 jobs), leisure and hospitality (+44,000) and education and health (+36,000). The government sector continues to shed jobs as states and particularly localities are forced to retrench under budget pressures. Office-using employment (made up of the financial, professional services and information sectors) increased 52,000 jobs, the fifth month in a row that these sectors have added more than 40,000 jobs. The last time that happened was from November 2005 to March 2006.
The decline in the unemployment rate is particularly encouraging. This data is obtained from the separate survey households (as opposed to the business survey that provides the payroll employment data) and that survey showed the number of people unemployed fell by 339,000 in January and has plunged by more than 1.1 million in the last four months. The labor force continues to grow, so people are entering the labor force and finding jobs.
The US economy is slowly regaining its footing after the interruption that started last spring. The employment growth of the last two months coupled with indicators of rising business and consumer spending (auto sales in January were the highest since mid-2008) are very positive. It’s still early and there are a number of important challenges facing the US economy including the resolution of European sovereign debt issues, the US budget deficit debate and the 2012 elections. But with corporate profits at record levels and household balance sheets in much better shape, the fundamentals are improving.
For the real estate industry there is nothing more important than employment. More jobs represent more demand for space. So a return to healthy job growth is the most positive sign in the last six months. Rising spending will also spur higher demand for manufacturing, warehouse and other industrial spaces. And, of course, higher consumer spending will help the retail sector.
We are encouraged by this report, however, as the chart below shows, the economy turned in a similar performance a year ago only to falter. We have been cautiously optimistic on 2012 and this report reinforces that outlook.
�
What may emerge from the Eurozone debt crisis?
Recent events in Europe have been deeply destabilising but in
time they could potentially lead to some quite welcome changes and could
also produce some surprises.
Starting with the latest “solution”, a deepening of fiscal links and controls between Eurozone members, this has been widely criticised for a lack of detail and also because it fails to address key issues like the build-up of private sector debt and the lack of growth in the Eurozone.
In reality however one plan can’t solve all problems; the Eurozone needs a number of initiatives in different areas and bringing control and trust back to public sector finances can hardly be a bad place to start. In fact if the planned compact evolves more as a Eurozone fiscal policeman than a fiscal government, then it might be a welcome step forward.
What is more, current pressures may bring about other overdue changes to combat excessive debts and push through reforms. Indeed, whether the Euro collapses or endures, there will be a need for such reforms to be accelerated and for imbalances to be righted.
So on the “welcome” side we have the potential for reforms to actually get under way at long last. On the “surprising” side, we have the prospect of the Euro emerging as a much stronger currency once its structure is revised and improved.
More of a long shot perhaps, what about the potential for the UK to consider joining the Euro? This may seem unlikely or even impossible today, but it could be a real winner for the Eurozone – helping to increase its size and importance, providing greater stability and boosting the Euro’s role as a global reserve currency.
So if getting the UK in would buy credibility – whatever certain French central bankers and officials might think – what price would Eurozone governments pay to make it happen? Cameron’s decision to veto could ironically shift the balance of bargaining power in the UK’s favour and could offer the best way to safeguard London’s future.
Membership of the single currency would also have a powerful effect on UK trade and productivity by locking in a competitive exchange rate, reducing currency fluctuations, improving price transparency and possibly leading to greater capital market integration.
So could it happen? It may look unlikely to say the least but recent events should have shown us it would be dangerous to rule anything out – well nearly!
David Hutchings, European Research Group, London
Starting with the latest “solution”, a deepening of fiscal links and controls between Eurozone members, this has been widely criticised for a lack of detail and also because it fails to address key issues like the build-up of private sector debt and the lack of growth in the Eurozone.
In reality however one plan can’t solve all problems; the Eurozone needs a number of initiatives in different areas and bringing control and trust back to public sector finances can hardly be a bad place to start. In fact if the planned compact evolves more as a Eurozone fiscal policeman than a fiscal government, then it might be a welcome step forward.
What is more, current pressures may bring about other overdue changes to combat excessive debts and push through reforms. Indeed, whether the Euro collapses or endures, there will be a need for such reforms to be accelerated and for imbalances to be righted.
So on the “welcome” side we have the potential for reforms to actually get under way at long last. On the “surprising” side, we have the prospect of the Euro emerging as a much stronger currency once its structure is revised and improved.
More of a long shot perhaps, what about the potential for the UK to consider joining the Euro? This may seem unlikely or even impossible today, but it could be a real winner for the Eurozone – helping to increase its size and importance, providing greater stability and boosting the Euro’s role as a global reserve currency.
So if getting the UK in would buy credibility – whatever certain French central bankers and officials might think – what price would Eurozone governments pay to make it happen? Cameron’s decision to veto could ironically shift the balance of bargaining power in the UK’s favour and could offer the best way to safeguard London’s future.
Membership of the single currency would also have a powerful effect on UK trade and productivity by locking in a competitive exchange rate, reducing currency fluctuations, improving price transparency and possibly leading to greater capital market integration.
So could it happen? It may look unlikely to say the least but recent events should have shown us it would be dangerous to rule anything out – well nearly!
David Hutchings, European Research Group, London
2011 Year-End Retail Round Up
As we approach the end of another year, the U.S. economy
continues its measured recovery. Gross Domestic Product grew at a 2.5%
annual rate in third quarter 2011, bolstered by consumer spending,
investment and exports, and a 1.1% year-over-year increase in non-farm
payrolls that resulted in a net gain of roughly 1.5 million new jobs.
Despite the improvement, the recovery’s slow pace has had a noticeable impact on U.S. consumers. Consumer confidence, as measured by the Conference Board, declined sharply in August to its lowest level since April 2009 and posted only a marginal gain in September, resulting in a third quarter average that fell below the level posted a year earlier.
By November, however, consumer confidence bounced back. Although same-store retail sales increased by only 3.2% in November, its smallest increase since March, the recent back-to-school spending season was declared by some observers to be the strongest since 2006. The holiday season began with a bang as well, as the “Black Friday” and “Cyber Monday” weekend set both traffic and sales records.
While the holiday season’s heavy promotions, deep discounting, and expanded store hours will undoubtedly affect margins and average selling prices, it remains unclear how impactful increased traffic and sales volumes will be on retailers’ bottom lines. With holiday sales accounting for as much as 20-40% of their total annual sales, retailers will remain very aggressive throughout the holiday season as they compete for consumers’ limited dollars.
Economic headwinds continue to perpetuate the ongoing bifurcation of the retail market. The gap between high income and low income households in the U.S. continues to grow while America’s middle class contracts. This “barbell of prosperity” has implications for all retail categories from apparel to consumer products as the high end luxury and low end discount segments continue to grow and thrive while the middle market segment shrinks.
U.S. luxury retailers continue to be the beneficiaries of this growing bifurcation trend, evidenced by their strong same-store sales performance in November. The luxury segment is being bolstered by strong demand and the weak U.S. Dollar that has attracted record numbers of foreign tourists, resulting in higher rents along urban high street retail corridors in U.S. gateway cities such as New York, Washington, DC and San Francisco.
The discount segment is thriving as well, as many U.S. consumers shift spending to “needs not wants.” This trend will continue to have a positive impact on warehouse clubs, outlet malls and perceived value apparel retailers like Nordstrom Rack and TJ Maxx. Notably, the outlet industry, which targets aspirational shoppers looking for luxury or higher-end items at value prices, will likely be one of the primary beneficiaries of tepid consumer confidence as it continues to capture a growing share of retail sales from other sectors.
On the real estate side, the retail supply pipeline is expected to remain at historic lows for the foreseeable future, which will continue to drive down vacancy rates, which now range from 5-6% in the Mall and General Retail sectors to over 11% in the Neighborhood and Strip Center product sectors. According to Property & Portfolio Research (PPR), less than 10 million sq ft of new retail space is expected to deliver this year, well off the pace of 157.7 million sq ft delivered at the peak of the market in 2006. Unlike the multi-anchor power centers and lifestyle centers that filled the pipeline in years past, the new, smaller pipeline will consist primarily of urban in-fill development or new-footprint big-box, single-tenant stores anchored by discount retailers such as Walmart, Target, and Costco.
Retail rent growth along well-established retail corridors in U.S. gateway cities will remain strong and buoyed by the performance of luxury tenants, while class A malls and well-located (high traffic) strip centers in urban in-fill locations with strong anchors are also expected to be above average performers. Rent growth in second tier malls and neighborhood/community centers will generally remain flat before seeing modest improvement in 2012.
Looking ahead, a myriad of factors including lingering unemployment, ongoing stock market volatility, persistent uncertainty about the political climate in the U.S. and financial conditions in Europe will likely impede any significant improvement in consumer confidence levels in the near term, which will temper household spending and restrain overall economic growth through the remainder of the year and into 2012.
For a look at the trends that will affect retail real estate in 2012, download a copy of Cushman & Wakefield’s latest Business Briefing 12 Trends for 2012 at the Knowledge Center or at http://cushwakeretail.com/trendwatch/.
Despite the improvement, the recovery’s slow pace has had a noticeable impact on U.S. consumers. Consumer confidence, as measured by the Conference Board, declined sharply in August to its lowest level since April 2009 and posted only a marginal gain in September, resulting in a third quarter average that fell below the level posted a year earlier.
By November, however, consumer confidence bounced back. Although same-store retail sales increased by only 3.2% in November, its smallest increase since March, the recent back-to-school spending season was declared by some observers to be the strongest since 2006. The holiday season began with a bang as well, as the “Black Friday” and “Cyber Monday” weekend set both traffic and sales records.
While the holiday season’s heavy promotions, deep discounting, and expanded store hours will undoubtedly affect margins and average selling prices, it remains unclear how impactful increased traffic and sales volumes will be on retailers’ bottom lines. With holiday sales accounting for as much as 20-40% of their total annual sales, retailers will remain very aggressive throughout the holiday season as they compete for consumers’ limited dollars.
Economic headwinds continue to perpetuate the ongoing bifurcation of the retail market. The gap between high income and low income households in the U.S. continues to grow while America’s middle class contracts. This “barbell of prosperity” has implications for all retail categories from apparel to consumer products as the high end luxury and low end discount segments continue to grow and thrive while the middle market segment shrinks.
U.S. luxury retailers continue to be the beneficiaries of this growing bifurcation trend, evidenced by their strong same-store sales performance in November. The luxury segment is being bolstered by strong demand and the weak U.S. Dollar that has attracted record numbers of foreign tourists, resulting in higher rents along urban high street retail corridors in U.S. gateway cities such as New York, Washington, DC and San Francisco.
The discount segment is thriving as well, as many U.S. consumers shift spending to “needs not wants.” This trend will continue to have a positive impact on warehouse clubs, outlet malls and perceived value apparel retailers like Nordstrom Rack and TJ Maxx. Notably, the outlet industry, which targets aspirational shoppers looking for luxury or higher-end items at value prices, will likely be one of the primary beneficiaries of tepid consumer confidence as it continues to capture a growing share of retail sales from other sectors.
On the real estate side, the retail supply pipeline is expected to remain at historic lows for the foreseeable future, which will continue to drive down vacancy rates, which now range from 5-6% in the Mall and General Retail sectors to over 11% in the Neighborhood and Strip Center product sectors. According to Property & Portfolio Research (PPR), less than 10 million sq ft of new retail space is expected to deliver this year, well off the pace of 157.7 million sq ft delivered at the peak of the market in 2006. Unlike the multi-anchor power centers and lifestyle centers that filled the pipeline in years past, the new, smaller pipeline will consist primarily of urban in-fill development or new-footprint big-box, single-tenant stores anchored by discount retailers such as Walmart, Target, and Costco.
Retail rent growth along well-established retail corridors in U.S. gateway cities will remain strong and buoyed by the performance of luxury tenants, while class A malls and well-located (high traffic) strip centers in urban in-fill locations with strong anchors are also expected to be above average performers. Rent growth in second tier malls and neighborhood/community centers will generally remain flat before seeing modest improvement in 2012.
Looking ahead, a myriad of factors including lingering unemployment, ongoing stock market volatility, persistent uncertainty about the political climate in the U.S. and financial conditions in Europe will likely impede any significant improvement in consumer confidence levels in the near term, which will temper household spending and restrain overall economic growth through the remainder of the year and into 2012.
For a look at the trends that will affect retail real estate in 2012, download a copy of Cushman & Wakefield’s latest Business Briefing 12 Trends for 2012 at the Knowledge Center or at http://cushwakeretail.com/trendwatch/.
They Say California is the Place You Ought to be…
Northern California, that is. What’s happening in the San Francisco Bay Area and Silicon Valley? Let me give you the short and sweet version.
San Francisco job growth was 1.3% through August and job growth was a whopping 2.4% in Silicon Valley.
This growth is not fake, fake, fake, like the dot.com era it’s real, real, real. Do these names sound familiar: Google, Sony, Twitter, YouTube, Apple and Microsoft? They are some of the firms driving the activity.
Leasing activity is up 30% in the region through the third quarter. In Silicon Valley over 6.0 million square feet has been leased year-to-date; 13% of the total inventory. Class A space in Los Altos is 100% leased! Silicon Valley leads the nation in venture capital funding capturing nearly 2 times that of the runner-up, New England (sorry Red Sox fans…)
Investors have caught on as well. Kilroy has made several acquisitions in San Francisco and the Canadian firm, Manulife has dipped its toes in the Bay too with multiple purchases.
What’s not to like? The Giants won the World Series in 2010, the 49ers are leading their division, demand is outpacing supply, the population is growing, the intellectual capital is world class and the quality of life is outstanding.
Y’all come back now – hear.
San Francisco job growth was 1.3% through August and job growth was a whopping 2.4% in Silicon Valley.
This growth is not fake, fake, fake, like the dot.com era it’s real, real, real. Do these names sound familiar: Google, Sony, Twitter, YouTube, Apple and Microsoft? They are some of the firms driving the activity.
Leasing activity is up 30% in the region through the third quarter. In Silicon Valley over 6.0 million square feet has been leased year-to-date; 13% of the total inventory. Class A space in Los Altos is 100% leased! Silicon Valley leads the nation in venture capital funding capturing nearly 2 times that of the runner-up, New England (sorry Red Sox fans…)
Investors have caught on as well. Kilroy has made several acquisitions in San Francisco and the Canadian firm, Manulife has dipped its toes in the Bay too with multiple purchases.
What’s not to like? The Giants won the World Series in 2010, the 49ers are leading their division, demand is outpacing supply, the population is growing, the intellectual capital is world class and the quality of life is outstanding.
Y’all come back now – hear.
Corporate confidence in Europe under the microscope
The latest Cushman & Wakefield Occupier Conference
in London revealed new research, the Insight 500 survey, emphasising
the negative impact global economic uncertainty was having on corporate
confidence and decision making. However, the conference was also warned
by broadcaster Rene Carayol
not to get too downhearted by overly negative media coverage. What is
more, it was also notable from the Insight survey that people were much
more negative about the wider economy than they were about their own
business sector – with legal and life sciences the most optimistic.
Source: Cushman & Wakefield, Insight 500 Survey, 2011
Clearly it’s dangerous to just extrapolate wider economic woes across all industries. There are sectors and businesses which are more optimistic– if largely focused on opportunistic growth.
There is also a balance between those looking to increase revenues and market share and those looking at cost savings – with the former, interestingly, more likely to be a retail or industrial company according to the Insight survey and the latter more typically an office based business.
In the short-term, a majority in the survey said they would be focussed on making the best use of the space they already had and avoiding increases to their fixed cost base. Looking forward, flexibility and future-proofing are key. However while 70% want to introduce more flexible working, 66% are also ready to target new markets, whether in Asia or closer to home. Moscow for example was picked as the top location for expansion in our recent European Cities Monitor.
In short there will be winners and losers in business and while only some property markets need to be ready to cope with increased total demand, all areas need to be ready to cater for increased demand for more efficient and more productive space.
David Hutchings, European Research Group, London
Source: Cushman & Wakefield, Insight 500 Survey, 2011
Clearly it’s dangerous to just extrapolate wider economic woes across all industries. There are sectors and businesses which are more optimistic– if largely focused on opportunistic growth.
There is also a balance between those looking to increase revenues and market share and those looking at cost savings – with the former, interestingly, more likely to be a retail or industrial company according to the Insight survey and the latter more typically an office based business.
In the short-term, a majority in the survey said they would be focussed on making the best use of the space they already had and avoiding increases to their fixed cost base. Looking forward, flexibility and future-proofing are key. However while 70% want to introduce more flexible working, 66% are also ready to target new markets, whether in Asia or closer to home. Moscow for example was picked as the top location for expansion in our recent European Cities Monitor.
In short there will be winners and losers in business and while only some property markets need to be ready to cope with increased total demand, all areas need to be ready to cater for increased demand for more efficient and more productive space.
David Hutchings, European Research Group, London
One step forward, one step back on Europe’s sovereign debt crisis
Last week it seemed we had been saved from collapse as an outline
deal emerged to tackle the sovereign debt crisis in the Euro zone but,
at best, these gains have now been put on hold by Greece’s decision to
hold a referendum on the package.
So if it was not clear before, it certainly should be now, there remains much to be done! It’s worth noting however that the steps suggested would strengthen the European banking system and provide hope that sovereign debt would be brought under control. A lot of the details are still to be agreed though, so even aside from the Greek dash to the polls, there was always going to be plenty of room for more grandstanding, volatility and disappointment.
The scale of the package has also frustrated some but there is a fine line to tread between putting enough commitment on the table and avoiding more moral hazard with bail outs.
With the haircut on Greek bonds for the private sector increased to 50%, this could help to stabilise Greece’s debt position fairly quickly – with the exchange of bonds planned for early 2012. A “voluntary” write-down also avoids the dread “default” label. What’s more, with the “troika” to start continuous and on-the-ground monitoring of Greek progress, we have the first steps towards centralised fiscal control – and more is to follow with Italy under pressure for example.
Bank recapitalisation plans will also need to be in place quickly. Through support and balance sheet cuts, the 9% tier 1 capital ratio target is to be hit by next June. This will not help the flow of new finance for real estate but should help stimulate bank action and bank-forced sales.
Putting debt on a firmer footing does not mean that deleveraging in the public and private sectors can slow down. In fact it will only throw more attention on to the question of how we generate the growth needed to fund the debt we have. Growth is therefore the next battle ground and this will require a rethink among many property investors who have been focussed of late only on income and income security.
Where will that growth be? What are currently considered “distressed” markets may have to reform most and those reforms may open the way for corporate growth and reorganisation that triggers more property demand. Longer term we also have the question of how much stronger Germany may become as the centre for a rejuvenated and stronger Euro zone?
Whilst it is too soon to judge now, taken together the measures being suggested may eventually be seen as a turning point in the sovereign debt crisis – once Greece and others accept the way forward. Indeed, an increase in risk taking by occupiers and investors could well begin quite quickly when the dust from Athens settles. Firmer measures to finance the enlargement of the EFSF – possibly including China – could only help confidence recover more rapidly.
David Hutchings, European Research Group, London
So if it was not clear before, it certainly should be now, there remains much to be done! It’s worth noting however that the steps suggested would strengthen the European banking system and provide hope that sovereign debt would be brought under control. A lot of the details are still to be agreed though, so even aside from the Greek dash to the polls, there was always going to be plenty of room for more grandstanding, volatility and disappointment.
The scale of the package has also frustrated some but there is a fine line to tread between putting enough commitment on the table and avoiding more moral hazard with bail outs.
With the haircut on Greek bonds for the private sector increased to 50%, this could help to stabilise Greece’s debt position fairly quickly – with the exchange of bonds planned for early 2012. A “voluntary” write-down also avoids the dread “default” label. What’s more, with the “troika” to start continuous and on-the-ground monitoring of Greek progress, we have the first steps towards centralised fiscal control – and more is to follow with Italy under pressure for example.
Bank recapitalisation plans will also need to be in place quickly. Through support and balance sheet cuts, the 9% tier 1 capital ratio target is to be hit by next June. This will not help the flow of new finance for real estate but should help stimulate bank action and bank-forced sales.
Putting debt on a firmer footing does not mean that deleveraging in the public and private sectors can slow down. In fact it will only throw more attention on to the question of how we generate the growth needed to fund the debt we have. Growth is therefore the next battle ground and this will require a rethink among many property investors who have been focussed of late only on income and income security.
Where will that growth be? What are currently considered “distressed” markets may have to reform most and those reforms may open the way for corporate growth and reorganisation that triggers more property demand. Longer term we also have the question of how much stronger Germany may become as the centre for a rejuvenated and stronger Euro zone?
Whilst it is too soon to judge now, taken together the measures being suggested may eventually be seen as a turning point in the sovereign debt crisis – once Greece and others accept the way forward. Indeed, an increase in risk taking by occupiers and investors could well begin quite quickly when the dust from Athens settles. Firmer measures to finance the enlargement of the EFSF – possibly including China – could only help confidence recover more rapidly.
David Hutchings, European Research Group, London
Winning Cities in an Uncertain World
Occupier and investor activity in the global property market
largely held up in the third quarter – but what are we likely to see in
the next few months? Sentiment has certainly become more cautious,
which is hardly surprising given the volatility of financial markets and
the uncertainty most of us are feeling over the economy. For quality
real estate however, we may see more rather than less investor demand –
with low interest rates not to mention quantitative easing and other
stimulus measures boosting the appeal of quality property.
Not any market will do of course and we’re already seeing pricing for some non-core assets come under downward pressure. What’s more, what was clear from our recent “Winning in Growth Cities” report was that investors are continuing their flight-to-quality and are flooding into core global cities.
Top 25 Cities for Global Property Investment (12 months to Q3 2011)
Commercial property, excluding development sites.
Source Real Capital Analytics and Cushman & Wakefield
New York attracted most investment over the last year but the top 25 globally took 54% of all investment. According to Wikipedia however, there are over 6 million cities in the world – so for investors to focus more than half their money on just 25 tells us something about risk tolerance and a need for scale and liquidity. Nonetheless, if investors only focus on the biggest, they may be missing out on opportunities to get better diversification by targeting a range of markets.
But where? A whole range of factors above and beyond size and wealth go to make cities a success, ranging from classic business location priorities through to softer factors such as image. Advancing technology may give us the freedom to work anywhere, but this is only serving to reshape the role of cities as a melting pot of people and ideas, with the winners those that have the densest network of skills, knowledge and learning but also the richest backdrop of culture, innovation and quality of life.
What’s more, the increasing range of cities competing and cooperating on the world stage should be seen as an opportunity for investors to refine their thinking on what is a prime and what is a second tier city and expand their effective investment universe at the same time – which must be helpful in today’s market given the huge focus we are now seeing on just a handful of cities.
David Hutchings, European Research Group
Not any market will do of course and we’re already seeing pricing for some non-core assets come under downward pressure. What’s more, what was clear from our recent “Winning in Growth Cities” report was that investors are continuing their flight-to-quality and are flooding into core global cities.
Top 25 Cities for Global Property Investment (12 months to Q3 2011)
Commercial property, excluding development sites.
Source Real Capital Analytics and Cushman & Wakefield
New York attracted most investment over the last year but the top 25 globally took 54% of all investment. According to Wikipedia however, there are over 6 million cities in the world – so for investors to focus more than half their money on just 25 tells us something about risk tolerance and a need for scale and liquidity. Nonetheless, if investors only focus on the biggest, they may be missing out on opportunities to get better diversification by targeting a range of markets.
But where? A whole range of factors above and beyond size and wealth go to make cities a success, ranging from classic business location priorities through to softer factors such as image. Advancing technology may give us the freedom to work anywhere, but this is only serving to reshape the role of cities as a melting pot of people and ideas, with the winners those that have the densest network of skills, knowledge and learning but also the richest backdrop of culture, innovation and quality of life.
What’s more, the increasing range of cities competing and cooperating on the world stage should be seen as an opportunity for investors to refine their thinking on what is a prime and what is a second tier city and expand their effective investment universe at the same time – which must be helpful in today’s market given the huge focus we are now seeing on just a handful of cities.
David Hutchings, European Research Group
